Categories: budget
Here are 5 common project budget problems and how to fix them. If you’ve got other suggestions for dealing with these situations, please let everyone know in the comments below!
1. Contract Expenditure is Overrunning
You’ll notice this hopefully before it causes a big overspend on your project. Your company has entered into an agreement with a supplier and now the bills are starting to rack up. This could happen if your agreement is on a time and materials basis, or a fixed price plus extra costs for changes to scope.
How to fix it: Find out why the costs are overrunning. Is it because your team is putting through too many change requests, which is hitting a contract clause that lets the supplier charge more? Or is something else at play? Whatever the cause, pin it down and work from there. Involve the supplier as well, so that they know that you can’t afford, or choose not to afford, to put up with those costs going forward. You may end up renegotiating the whole thing, but better to do that early than to put up with overspends for too long.
2. Resource Expenditure is Overrunning
When you have to pay for internal or external resources, the costs can soon mount up. It’s not difficult to find yourself with spiralling resource costs, even if they are just wooden dollars being moved between departments.
The most likely causes are poor estimating and too many change requests.
How to fix it: It’s often hard to drill down into the detail of where a resource is spending time, especially if you don’t have a timesheet application. If you don’t record time, then start doing that first! It will really help you improve your estimates over the longer term.
Short term, you need to sit down with your team and reforecast the whole project. If you then can’t afford to do all the work that you’ve planned out, you need a frank conversation with your project sponsor about what can be taken out of scope for this phase.
3. Managing Risks is Costing More
In fact, the common problem here is when you didn’t budget anything for project risk management. Then a risk pops up and you’d like to do something about it and can’t because there’s no money allocated for risk mitigation or to exploit a positive risk.
How to fix it: It’s too late to go back and ask for a risk budget now… or is it? You might find your sponsor open to that kind of conversation, and it certainly doesn’t hurt to ask.
If you don’t have additional money available then you have to adjust your activities accordingly. Perhaps your project board could accept a higher level of risk for that element, or they would be prepared to compromise on something else. Put together a proposal that explains the risks, the costs and the benefits along with some options so that they have choices.
4. You Can’t Access Management Reserves
Ah, the mythical management reserve. This hits project managers who have sponsors that are poor at following through on their promises. The sponsor says that there is some kind of ‘contingency’ or ‘management reserve’ that can be spent at their discretion if required, say, in the event of an unplanned project disaster.
Said disaster happens and suddenly they don’t have authority to access those funds, or another project has used them, or you need to write a business case to access them…
How to fix it: You will struggle to fix this one in advance but your best bet is to make sure that you have full confidence that any pot of money that is being held outside your official project budget does actually exist and is there for you. Of course, the best thing to do will be to manage the project so you don’t need to tap into additional reserves.
5. You Can’t Track Expenditure
This happens when other people are spending your project budget and not letting you know where it is going. The first you hear about resources being acquired or a deal being signed is when the invoice gets passed to you from Finance with a big question mark written on it.
When this happens you can’t accurately keep track of what is being spent, and whether it is being spent on the right things.
How to fix it: Sort out the process for spending money. Make it clear to the project team (even those people who are more senior than you) that purchase orders have to go through you for tracking, even if you don’t have the authority to actually sign them. Let the Finance team know as well so that they can be copying you in on requests and making sure that the process is adhered to. They have no interest in receiving invoices that can’t be paid or getting the company into debt with inappropriate suppliers so they will be on your side!
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